John Lanchester’s LRB article

Just been reading John Lanchester‘s Cityphillia in the latest issue of the LRB. It is one of those reasonable-sounding pieces written by a man of otherwise unimpeachable good sense, which is nevertheless extremely irritating. He starts off by complaining how rich city types ruin all the nice places, and the obscene amounts of money they make in comparison to other presumably more deserving people:

He happened once to mention what he (as a head of department) pays new recruits, straight out of university: ‘45k a year, with a bonus of between ten and twelve grand guaranteed.’ I pointed out that in many cases that would mean these 22-year-olds would be earning more than the heads of department in the universities they’d just graduated from. He shrugged and laughed. ‘It is what it is,’ he said.

This is really more an indictment of university pay than of the financial industry. One only has to compare starting salaries in investment banking and consulting with that of tenure track positions in top American research universities in Mathematics, science, engineering and business, to see just how badly off their British counterparts are. The same goes for doctors in the UK.

Most of the rest of the article is a rant about how financial markets are unstable because people don’t understand derivatives, sub-prime securities and risk in general. His complaint can be summarised as: `Look at these people in finance, not content with making more money than worthier people, they gamble with other people’s money jeopardising our entire way of life. How awful.’ Never mind the fact that finance is the hub on which the British economy turns. Compare Britain’s growth with that of Germany and France. In spite of French and German manufacturing might, their economy lags behind Britain’s.

He buttresses his rant about derivatives with quotes from Warren Buffett. A lesser man than Lanchester would’ve been accused of disingenuousness here, as Buffett is generally opposed to investing in the stock market. So his regarding derivatives as particularly pernicious financial instruments is not surprising. It is true that derivatives are often used by people who don’t understand them well enough, but it is pointless to reproduce the complaints of a man who’s made his billions by turning distressed companies around, and whose contempt for capital markets is well documented.

He ends with

Still, let’s look on the bright side: at least City bonuses will be smaller this year.

which is a perfect example of cutting off one’s nose to spite one’s face—smaller city bonuses mean less money for the exchequer.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: